VZCZCXRO5390
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0991/01 1351253
ZNR UUUUU ZZH
R 151253Z MAY 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 6597
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 05 NEW DELHI 000991 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/INS AND EEB 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR 
DEPT PASS TO USTR CLILIENFELD/AADLER/CHINCKLEY 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
USDA PASS FAS/OCRA/RADLER/BEAN/FERUS 
EEB/CIP DAS GROSS, FSAEED, MSELINGER 
 
E.O. 12958: N/A 
TAGS: ECON EAGR EAIR ECPS EFIN EINV EMIN ENRG EPET ETRD
BEXP, KBIO, KIPR, KWMN, IN 
 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF MAY 
11 TO MAY 15, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of May 11-15, 2009, including the following: 
 
-- Exports Continue Contraction 
-- March Industry Growth Down 
-- But Manufacturing Sector Showing Revival Signs 
-- Consumer Inflation Shows Some Abatement 
-- SEZ Proposals Waiting for New Government 
-- No Safeguard Duty on Steel for now 
-- EU Challenges India's "Assessment Fee" on Wines and Spirits 
-- Press Notes on FDI To Be Revisited 
-- Commerce Secretary Pillai on WTO Doha Round and Wheat Exports 
-- India Allows Export of 1 MT Long Grain 
-- Tata Unveils its First "Nano Housing" Development 
 
Exports Continue Contraction 
----------------------- 
 
¶2.  (U) India's exports shrunk for the seventh consecutive month in 
April 2009, falling by 33 percent compared to the same month last 
year.  Imports too contracted by 32 percent to $16 billion in April 
¶2009.  Analysts opine that demand slowdown in key export markets 
like the US and Europe, which account for over 40 per cent of 
India's exports, and a high base effect were the main reasons for 
the sharp fall in exports.  With imports declining at a faster rate 
than exports, the trade deficit narrowed to $5.3 billion in April 
2009 as compared to $8.75 billion in the corresponding month a year 
ago.  In FY 2008-09, exports had grown by an average of 30 percent 
through September, when the global financial crisis and economic 
downturn slowed demand in the US and Europe.  Given the decline in 
exports since October, exports for the total fiscal year of April 
2008 to March 2009 expanded by only 3.4 per cent to reach $168 
billion, missing the Commerce Ministry's lowered target of $175 
billion. 
 
March Industry Growth Down 
-------------------------- 
¶3.  (U) India's industrial output, as measured by the Industrial 
Index of Production (IIP) declined by 2.3 percent in March, due 
considerably to a high base effect but also because of the sharp 
fall in exports.  (Note: In March, exports fell by one-third, 
compared to March 2008 when they rose by 18.6 percent.  End note.) 
The manufacturing sector, which comprises about 80 percent of the 
IIP, fell to a low of negative 3.3 percent compared to the same 
month the previous year.  Electricity production was more 
encouraging, up 6.3 percent in March 2009 from an average growth of 
2-3 percent over previous months.  In use-based terms, the capital 
goods sector declined by 8.2 percent, suggesting a slowdown in 
private investment.  Consumer goods too remained in negative 
territory at -0.8 percent for the second consecutive month, due to a 
fall in non-durables.  However, consumer durable goods recorded a 
healthy growth of 8.3 percent, primarily attributed to the impact of 
the payment of arrears of salaries to government employees and the 
RBI's easing of monetary policy since October 2008.  Industrial 
growth for the full FY 2008-09 was just 2.4 percent, versus 8.5 
percent in FY 2007-08.  However, the last several months' IIP has 
been revised upwards, suggesting a modest increase in the final 
revised IIP performance. 
¶4.  (U) Saumitra Chaudhuri, Member of the Prime Minister's Economic 
Advisory Council and Principal Economic Advisor at Credit Rating 
Agency ICRA, cautioned against too much reliance on the IIP, 
asserting that the "IIP has been underestimating growth by 3-4 
percent over the years.  This is evident from the difference between 
growth in manufacturing as captured by the IIP and GDP.  So at best, 
the IIP numbers are indicative of a trend. But a contraction in 
industrial growth is baseless".  Overall, most analysts expect an 
uptick in April's industrial production, as car sales have picked up 
in the last three months, freight and port traffic have also shown 
an increase and sectors such as steel and cement have shown an 
improvement.  RBI Governor Subbarao remarked that he expects India's 
economic recovery to be sharper and swifter than that of others once 
the world economy starts to recover, as he sees India's economy 
backed by strong fundamentals and untapped growth potential. 
 
NEW DELHI 00000991  002 OF 005 
 
 
But Manufacturing Sector Showing Revival Signs 
---------------------------------------- 
¶5.  (U) A survey undertaken by the Confederation of Indian Industry 
(CII) has revealed a higher percentage of firms reporting positive 
growth in sales in the three month ended March 2009, compared with 
that in the preceding quarter (October-December 2008).  The increase 
points to a marginal recovery in manufacturing, with a few sectors 
moving from negative growth to moderate growth.  Director-General of 
CII, Chandrajit Banerjee, remarked that "...there are some green 
shoots from a few sectors that have demonstrated a marginal pickup 
during the second half of 2008-09 when compared with the first half. 
These demonstrate a cautious optimism on signs of recovery." 
According to the survey, sectors that moved from negative growth to 
moderate growth include fertilizers, chemicals, pig iron, steel and 
two-wheelers.  Despite the improvement, manufacturing growth still 
remains low on a year-on-year basis: while over 15 percent of 
manufacturing sectors reported excellent growth in FY08, only six 
percent did so in FY08-09.  Thirty percent of sectors reported a 
decline in production at the end of FY08-09, as opposed to just six 
percent in FY08. 
Consumer Inflation Shows Some Abatement 
--------------------------------------- 
 
¶6.  (U) The government belatedly released its latest consumer price 
indices (CPI) figures this week, noting consumer inflation for 
March.  The inflation rate as measured by the CPI for industrial 
workers fell by more than 1.5 percentage points to 8.03 percent in 
March compared to 9.63 percent in February.  The CPI for 
agricultural workers and rural workers fell to 9.46 percent and 9.69 
percent respectively compared to 10.79 percent for both indices in 
February 2009.  CPI has been trending much higher than the wholesale 
price index (WPI), which has been under one per cent since early 
March.  This is mainly due to the significant weight of food 
articles in the CPI compared to the WPI.  Food prices have been high 
in recent months, stemming from seasonal spikes in fruits, 
vegetables, and sugar, as well as higher prices in pulses prompted 
by less private imports.  Meanwhile, WPI, which is more generally 
tracked in India since it is a broader and more frequently released 
index, slightly dipped to 0.48% for the week ending May 2, compared 
to the same period the year before.  WPI inflation the week before 
was slightly higher, at 0.70. 
 
SEZ Proposals Waiting for New Government 
-------------------------------------- 
 
¶7.  (U) As of March 31, 2008, the empowered board of approvals (the 
Board) on Special Economic Zones (SEZs) had approved 568 SEZs, gave 
144 'in-principle' approvals, and 311 notifications.  However, since 
then, and in light of the financial crisis, some of the approved SEZ 
proposals have been withdrawn or put on hold.  Ministry of Commerce 
officials told media that a large number of SEZ developers have 
sought extra time to complete their projects due to a lack of funds. 
 For example, major real estate players like DLF and Parsvanath have 
been unable to raise funds for their SEZ projects, and DLF 
reportedly approached the government on surrendering four of its 
nine notified SEZs, while Parsvanath has put twelve of its IT SEZ 
projects on hold.  Moreover, although the Board is scheduled to 
consider eighteen SEZ proposals after the new government in India 
assumes office later this month, it remains to be seen whether the 
ministry will approve the SEZ proposals in accordance with the 
policy framework of the present government, if the same coalition 
does not return to power. 
 
No Safeguard Duty on Steel for now 
---------------------------------- 
 
¶8.  (U) The Government of India (GOI)'s Board of Approvals, headed 
by Commerce Industry Secretary GK Pillai, recently deferred a 
decision on whether to impose a special import duty on hot-rolled 
steel.  The decision was taken despite a recommendation by the 
Ministry of Finance's Directorate General of Safeguards to impose a 
25 percent safeguard duty on flat steel products such as hot-rolled 
steel.  The Board stated that it wants to look at the submissions of 
 
NEW DELHI 00000991  003 OF 005 
 
 
all stakeholders before making a final decision, since domestic 
producers who use the imported steel as an input would be hurt by 
the increased steel cost.  Domestic steel manufacturers Essar Steel 
and Ispat Industries had filed complaints seeking protection against 
imports of the product.  India has lately re-commenced the use of 
safeguard duties to protect domestic industry against alleged import 
surges, as the procedure for imposing anti-dumping duties is more 
time-consuming.  While the safeguard duty has only been imposed on a 
single chemical in recent months, the directorate of safeguards is 
carrying out investigations into a number of products. 
 
¶9.  (U) Faced with recessionary conditions, the domestic steel 
industry in India is trying to sustain its margins.  Following 
shrinking global demand, Indian steel makers are reportedly finding 
it difficult to continue operating loss-making foreign subsidiary 
operations.  According to recent press reports, an Indian steel 
giant, Jindal Steel Works (JSW), plans to sell its plants in the 
U.S. to cut losses, although a senior manager of JSW immediately 
denied the media report.  Similarly, Tata Steel's Corus unit is 
reportedly planning to shut temporarily some of its economically 
unviable plants in Europe.  According to a Tata Steel executive, the 
temporary closure of some of its loss-making units since October 
2008 has saved the company around $650 million, and the company is 
now planning to set up new production capacities of up to 3 million 
tons within India by 2012.  As India's largest steel maker, Tata 
Steel has said it is counting on its domestic operations to help the 
company maintain profitability, based on its estimate of domestic 
steel demand growth of 5-6 percent during the current year. 
 
EU Challenges India's "Assessment Fee" on Wines and Spirits 
--------------------------------------------- --- 
 
¶10.  (U) The European Union recently asked for additional WTO 
consultations with the Government of India (GOI) over the imposition 
of an "assessment fee" levied by the state of Andhra Pradesh on 
imported whiskies.  The EU in their complaint claims "the assessment 
fee levied by Andhra Pradesh appears to apply at rates which are 
inversely proportional to the assessable value of imported wines and 
spirits in the range of 100 per cent to 15 per cent ad valorem for 
imported wines and 200 per cent to 60 per cent ad valorem for 
imported spirits, respectively".  The EU also claims that the fee is 
not levied on similar products manufactured by Indian producers, and 
thus it violates "national treatment" principle of the WTO mandate. 
India has 60 days to respond to the EU request.  If the two sides 
fail to amicably resolve the issue, Brussels may ask for a WTO 
dispute settlement panel.  Last year, the EU called India for 
dispute settlement consultations on state levies imposed by 
Maharashtra, Goa, and Tamil Nadu on imported wines and spirits 
claiming additional taxes higher than that imposed on domestic 
products.  The EU later suspended the proceeding after the GOI 
removed the additional taxes. 
 
Press Notes on FDI To Be Revisited 
---------------------------- 
 
¶11.  (U) According to local media, the controversial 2009 Press 
Notes 2, 3, and 4 will be revised by the government to close 
loopholes that would otherwise allow companies to exceed caps on 
foreign direct investment.  The February press notes, in an effort 
to simplify how FDI is calculated, stated that if Indian promoters 
hold a majority stake in a company, it would be considered 
Indian-owned, and their downstream investments above sectoral caps 
would be permitted.  Many interpreted the notes to signify that as 
long as the company is considered Indian-owned, it would be able to 
invest through joint ventures in other companies operating in 
sectors where FDI is currently limited or prohibited, such as 
banking, insurance and multi-brand retail. 
 
¶12.  (U) The Ministry of Commerce and Industry has indicated that 
the clarification to the Press Notes would note that the new 
guidelines do not apply to the banking sector, and is currently 
consulting with the Ministry of Finance and the RBI to resolve the 
issue.  The clarification will also likely revise how portfolio 
 
NEW DELHI 00000991  004 OF 005 
 
 
investment through Foreign Institutional Investors (FIIs) is 
calculated.  The Press Notes included FII investment in total FDI 
limits, inadvertently changing the classification of ICICI Bank and 
HDFC Ltd to "foreign owned" due to the total of their FII and FDI 
holdings.  Separating FII and FDI in a clarification would allow 
ICICI and HDFC to be categorized as "Indian-owned" again, avoiding 
the restrictions imposed on foreign banks. 
 
¶13.  (U) Two major companies have notably taken steps to take 
advantage of the new calculation rules.  Pantaloon Retail and media 
house UTV (FDI is prohibited in multi-brand retail and limited to 26 
percent in media) have restructured their companies to allow for FDI 
through step-down subsidiaries or joint ventures.  The changes and 
any investments are in violation of the government's FDI policy, but 
seem to be permitted by the Press Notes. 
 
Commerce Secretary Pillai on WTO Doha Round and Wheat Exports 
-------------------------------------- 
 
¶14.  (U) Speaking at a May 14 conference on the WTO Doha Round 
organized by Indian business chamber FICCI, Commerce Secretary GK 
Pillai indicated that a mini-ministerial to 'take stock' of the 
Round would take place in Geneva in November.  Pillai said that if 
the U.S. insists on a 'new approach', the talks were likely to be 
delayed indefinitely as other members would come forward as well 
with new issues for inclusion.  "If the U.S. wants issues like labor 
and environment to be included in the talks, we too would come up 
with our own set of issues like disciplining of "green box" farm 
subsidies and non-tariff barriers.  Then you are in for a major 
extension of timelines," warned Pillai. 
 
¶15.  (U) During the FICCI conference, Pillai also stated that the 
GOI had decided to permit up to 2 million tons of wheat to be 
exported after the national elections.  However, given that domestic 
Indian wheat prices are below prevailing international wheat prices, 
exports are unlikely without government export subsidies. 
 
India Allows Export of 1 MT Long Grain 
-------------------------------------- 
¶16.  (U) Easing trade curbs on food grains, the government of India 
(GOI) recently allowed non-basmati rice exports of about one million 
tons by state firms (MMTC, STC and PEC) to 21 countries.  The new 
guidelines also require that broken rice should account for at least 
a quarter of exports, state firms should ensure shipments do not 
raise local prices, and export consignments should be sourced from 
more than one state.  The announcement follows piling surplus stocks 
of rice since October-November 2008.  India banned non-basmati rice 
exports last year to deal with shortages at home; however, a bumper 
harvest crop motivated it to lift curbs and allow sales of specified 
quantities to some countries.  Earlier, in January 2009, the GOI 
abolished the export tax on basmati rice, and reduced the floor 
price for shipments.  Indian exporters of rice have been lobbying 
for lifting of the ban considering production estimates of rice of 
about 99 MT (up 2.3 percent from last year) in the current crop year 
ending June 2009. 
Tata Unveils its First "Nano Housing" Development 
------------------------------------------ 
 
¶17.  (U) Following the recent launch of Tata Motors' Nano, called 
the world's cheapest car, another Tata group company, Tata Housing, 
announced its plan to build low cost homes across India.  The first 
of what is being referred to in the press as "nano housing" 
developments will be in Boisar, approximately 60 miles outside of 
Mumbai.  The Boisar development will consist of 1,200 one bedroom 
apartments ranging from 283 to 465 square feet in size and costing 
between about USD 7,800 to 13,400.  Like the distribution system 
used for the Tata Nano, the apartments will be allocated by lottery 
shortly after the close of the announced booking period (June 1 
through June 15, 2009).  According to media reports, Tata Housing 
plans to build as many as 15,000 similar affordable homes over the 
next four years. 
 
¶18.  (U) Visit New Delhi's Classified Website: 
 
NEW DELHI 00000991  005 OF 005 
 
 
http://www.state.sgov/p/sa/newdelhi. 
 
BURLEIGH